Order: 2014-1-22

Serve January 31, 2014

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 31st day of January, 2014

ORDER TEMPORARILY SETTING SUBSIDY RATE

Summary

By this Order, the Department is extending the service period for Schuman Aviation Company 

Ltd. d/b/a Makani Kai Charters (“Makani Kai”), to provide Essential Air Service (“EAS”) 

operations at Kalaupapa, Hawaii, from January 1, 2014, through May 31, 2014. Makani Kai

will continue to provide Kalaupapa with 12 round trips a week to Honolulu and 18 round trips a 

week to Molokai using nine-seat Cessna Grand Caravan aircraft at an annual subsidy rate of 

$923,509.1 

Background

By 2011-11-27, issued on November 22, 2011, the Department selected Makani Kai to provide 

subsidized EAS at Kalaupapa, with nine-seat Cessna Grand Caravan aircraft,2 for the two-year 

period ending December 31, 2013, at an annual first-year subsidy rate of $932,772, and a 

second-year subsidy rate of $923,509. 

The complete public file for EAS at Kalaupapa may be accessed online through the Federal 

Dockets Management System at: http://www.regulations.gov by entering “DOT-OST-2000-

6773” in the “SEARCH for: Rules, Comments, Adjudications or Supporting Documents:” field.

As the end of the current rate term approached, the Department issued Order 2013-10-3, on 

October 4, 2013, requesting proposals from air carriers interested in providing EAS at 

Kalaupapa, with or without subsidy support, for a new contract. Those proposals were due no 

later than October 31, 2013. In response, the Department received four proposals, which are 

currently under review. However, the Department has not yet completed the carrier-selection 

case, and Makani Kai’s rate to serve Kalaupapa ended December 31, 2013. Therefore, the 

Department will extend Makani Kai’s contract until further Departmental action. We expect 

 1 Subsidy is calculated and distributed on a fiscal year basis, subject to the availability of funds. 

2 In its original proposal, Makani Kai proposed using one of its Piper Chieftains as a substitute aircraft for the 

Grand Caravan when operational needs required it.

Essential Air Service at

KALAUPAPA, HAWAII

Under 49 U.S.C. § 41731 et seq.

DOCKET DOT-OST-2000-6773
2

Makani Kai to continue to maintain its current level of service at Kalaupapa, as detailed in 

Appendix A.

 Consistent with established program policy, we typically use a carrier’s 

prospective proposal that was submitted during the competitive bid process to establish a 

bridge rate until the carrier selection process has been completed. After reviewing Makani 

Kai’s proposed rate for a two-year term, we have concluded that it appears reasonable for the 

service at issue. We will therefore establish it as the final rate for the carrier’s hold-in service at 

Kalaupapa, until further Departmental action.

This Order is issued under authority delegated in 49 CFR Part 1.25a(b).

ACCORDINGLY,

1. The Department extends the contract for Schuman Aviation Company Ltd. d/b/a Makani 

Kai Charters, to continue to provide Essential Air Service at Kalaupapa, Hawaii, from 

January 1, 2014, through May 31, 2014;

2. We set the rate of compensation for Schuman Aviation Company Ltd. d/b/a Makani Kai 

Charters, for the provision of Essential Air Service at Kalaupapa, Hawaii, as described in 

Appendix A; 

3. The Department directs Schuman Aviation Company Ltd. d/b/a Makani Kai Charters to 

retain all books, records, and other source and summary documentation to support claims for 

payment, and to preserve and maintain such documentation in a manner that readily permits its 

audit and examination by representatives of the Department. Such documentation shall be 

retained for seven years from the issuance date of this Order or until the Department indicates 

that the records may be destroyed, whichever comes first. Copies of flight logs for aircraft sold 

or disposed of must be retained. The carrier may forfeit its compensation for any claim that is 

not supported under the terms of this Order;

4. Docket DOT-OST-2000-6773 will remain open until further order of the Department; and
3

5. The Department will serve a copy of this Order on the Administrator of the Kalaupapa 

Settlement, Schuman Aviation Company Ltd. d/b/a Makani Kai Charters, and the service list of 

this Docket.

By:

SUSAN L. KURLAND

Assistant Secretary for

Aviation and International Affairs

(SEAL)

An electronic version of this document is available online at

www.regulations.gov
Appendix A

Schuman Aviation Company, Ltd. d/b/a Makani Kai

Annual Compensation Requirement for Essential Air Service at Kalaupapa, Hawaii

12 round trips per week to Honolulu and 18 round trips per week to Molokai

Estimated Annual Revenue: Kaluapapa Resident Prices

Between HNL & LUP $90,480 $ 72.50* Kaluapapa residents price for term of contract 

Between MKK & LUP $79,560 $ 42.50* Kaluapapa residents price for term of contract

* plus FET Tax and Segment Fees.

Total Revenue $170,040

Averaged Estimated Expenses over the course of the contract:

Aircraft $180,000.00

Insurance $96,000.00 

Pilots $162,240.00

Fuel $228,150.00

Maintenance $117,000.00

Engine & Prop Reserve $97,500.00

State Landing Fees $15,974.40

Administration $85,000.00

Total Expenses $981,864.40

Operational Loss $(811,824.00)

Departures per year: 3,120

TWO YEAR SERVICE PLAN

Subsidy requested 1st year $787,386.60

Estimated passengers 2800

Subsidy requested 2nd year $771,232.80

Estimated passengers 3000

FOUR YEAR SERVICE PLAN

Subsidy requested 1st year $751,040.00

Estimated passengers 2800

Subsidy requested 2nd year $730,848.00

Estimated passengers 3000

Subsidy requested 3rd year $710,656.00

Estimated passengers 3200

Subsidy requested 4th year $690,463.00

Estimated passengers 3400
Appendix B

Schuman Aviation Company Ltd., d/b/a Makani Kai Air Charters

Essential Air Service to be Provided at Kalaupapa, Hawaii

Effective Period: January 1, 2014, until May 31, 2014

Scheduled Service: 12 round trips per week to Honolulu; and 18 round trips per week to Molokai

Aircraft: Cessna Grand Caravan or Piper Chieftain, 9 seats

Annual Compensation: $787,386

Rate per Eligible Flight: $2521

Weekly Ceiling: $15,1202

The air carrier understands that it may forfeit its compensation for any flights that it does not operate in conformance

with the terms and stipulations of the rate Order, including the service plans outlined in the Order and any other

significant elements of the required service, without prior approval. The air carrier understands that an aircraft takeoff and landing at its scheduled destination constitutes a completed flight; absent an explanation supporting subsidy

eligibility for a flight that has not been completed, such as certain weather cancellations, only completed flights are

considered eligible for subsidy. In addition, if the air carrier does not schedule or operate its flights in full 

conformance with the Order for a significant period, it may jeopardize its entire subsidy claim for the period in 

question. If the air carrier contemplates any such changes beyond the scope of the Order during the applicable

period of these rates, it must first notify the Office of Aviation Analysis in writing and receive written approval from 

the Department to be ensured of full compensation. Should circumstances warrant, the Department may locate and 

select a replacement air carrier to provide service on these routes. The air carrier must complete all flights that can 

be safely operated; flights that overfly points for lack of traffic will not be compensated. In determining whether

subsidy payment for a deviating flight should be adjusted or disallowed, the Department will consider the extent to 

which the goals of the program are met and the extent of access to the national air transportation system provided to 

the community.

If the Department unilaterally, either partially or completely, terminates or reduces payments for service or changes 

service requirements at a specific location provided for under this Order, then, at the end of the period for which the

Department does make payments in the stipulated amounts or at the stipulated service levels, the air carrier may 

cease to provide service to that specific location without regard to any requirement for notice of such cessation. 

Those adjustments in the levels of subsidy and/or service that are mutually agreed to in writing by the Department 

and air carrier do not constitute a total or partial reduction or cessation of payment.

Funds may not be available for performance under this Order beyond September 30, 2014. The Government’s 

obligation for performance under this Order beyond September 30, 2014, is subject to the availability of funds from 

which payment for services can be made. No legal liability on the part of the Government for any payment may 

arise for performance under this Order beyond September 30, 2014, until funds are made available to the 

Department for performance. If sufficient funds are not made available for performance beyond 

September 30, 2014, the Department will provide notice in writing to the carrier. 

Subsidy contracts are subject to, and incorporate by reference, relevant statutes and Department regulations, as they

may be amended from time to time. However, any such statutes, regulations, or amendments thereto shall not 

operate to controvert the foregoing paragraph.

All claims for payment, including any amended claims, must be submitted within 90 days of the last day of the 

month for which compensation is being claimed. For example, claims for service provided in July must be filed by 

October 31st; August claims must be submitted by November 30th, and so on.

 1 Annual compensation of $787,386, divided by 3,120 annual departures (12 arrivals and 12 departures at Honolulu 

and 18 arrivals and 18 departures at Molokai each week) x 313 days x 0.99 (completion factor) = 3,120. 2 60 flights per week multiplied by $252 per flight.